CALGARY, Nov. 23 /CNW/ - Alternative Fuel Systems (2004) Inc. ("AFS
(2004)" or the "Company") (TSX Venture: AFX) announced today financial and
operating results for the third quarter ended September 30, 2006. "In the
third quarter, we posted strong cash flow and we recorded the largest profit
since we reorganized the Company in 2004," said AFS President and CEO Jim
Perry. "As a result, our cash position was almost 9 cents per share at the end
of the quarter, despite our increasing inventory to address order levels."
Mr. Perry also commented that, "Pressure regulator revenue is up 168%
from the comparative quarter in 2005, with continued strength in sales to our
major customer in Europe. Although these sales will slow down in Q4 due to
holidays and production issues, they are forecast to return to the same level
of production as we saw in Q3, effective early in January. In the meantime, we
are seeing continued growth in our sales of engine management electronics to
customers in both the USA and Southeast Asia. In addition, in the past few
months we have managed to dramatically increase the flow of parts required for
regulator and electronic sales."
For the three-month period ended September 30, 2006, the Company
recognized revenue of $762,000 from sales to clients primarily in Europe, the
U.S. and Asia, up 66% from the same period in 2005. AFS (2004) recorded a net
income of $74,000 during the quarter, compared to a net loss of $27,000 in the
same quarter in 2005, when revenue was $530,000. Mr. Perry stated that "We
have a number of projects in Southeast Asia and the Middle East that continue
to show promise, and although there is no guarantee that these opportunities
will become hard contracts, they certainly have excellent potential."
Management's Discussion and Analysis ("MD&A")
Below is Management's discussion and analysis of financial results for
the three and nine-month periods ended September 30, 2006 and September 30,
2005.
Operating Results
Sales Revenue
Sales for the third quarter were comprised of the following (amounts in
thousands of Canadian dollars):
<<
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Three Months Ended Nine Months Ended
September 30 September 30
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2006 2005 2006 2005
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Pressure regulators $ 600 $ 224 $ 1,370 $ 555
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Engine management systems 142 175 400 319
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Ignition systems and
other parts 16 59 111 805
-- -- --- ---
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Subtotal Product Sales $ 758 $ 458 $ 1,881 $ 1,679
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Engineering services 4 72 62 163
- -- -- ---
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Total $ 762 $ 530 $ 1,943 $ 1,842
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>>
The substantial growth in pressure regulator sales was due to increased
demand from the Company's major European customer, who is providing AFS
products for use in high-end taxis and commercial vehicles. Ignition system
sales, which were primarily to customers selling into Southeast Asia, were
reduced since the large government-supported projects last year were not
repeated in the current period.
Gross margins
Gross margins realized in the third quarter were $368,000 or 49% compared
to 51% for the same quarter in 2005.
Operating and administrative expenses
Operating and administrative expenses for the three and nine month
periods ended September 30, 2006 and September 30, 2005 were comprised of the
following (amounts in thousands of Canadian dollars):
<<
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Three Months Ended Nine Months Ended
September 30 September 30
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2006 2005 2006 2005
-------------------------------------------------------------------------
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Engineering & product
development $ 143 $ 143 $ 433 $ 438
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Administrative & other 97 111 310 384
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Sales & marketing 42 38 126 112
--- --- --- ---
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Total $ 282 $ 292 $ 869 $ 934
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>>
Employee wages and benefits accounted for 74% (or $208,000) of the
$282,000 in total operating and administrative expenses recognized during the
third quarter of 2006. The reduction in administrative staff continues to be
reflected in the decreased expenses in the year over year comparisons.
The Company currently has 11 full time employees, with consultants,
distributors and agents in Europe, India, Iran and the U.S.
Liquidity and capital resources
Accounts Receivable
The accounts receivable balance of $414,000 at September 30, 2006 was
$107,000 higher than the December 31, 2005 balance of $307,000. The increase
was due to a few large orders shipped and invoiced just prior to the end of
the quarter.
Prepaid Expenses
At September 30, 2006 prepaid expenses were $39,000 down $107,000 from
$146,000 at December 31, 2005. The decrease is due to prepaid insurance
premiums at year end being amortized monthly during the current fiscal year.
Inventory
Inventory has increased in the third quarter of 2006 to $597,000 compared
to the December 31, 2005 balance of $487,000, a change of $110,000. In 2006,
larger purchases were made to raise inventory up to levels needed to fulfill
the higher demand for the Company's Falcon pressure regulator in Europe.
Accounts payable and accrued liabilities
The accounts payable balance was $245,000 compared to $271,000 at
December 31, 2005. The decrease of $26,000 was attributed to a reduction in
trade payables.
Advances from customers
Advances from customers have decreased to $111,000 at September 30, 2006
from a balance of $213,000 at December 31, 2005. The decrease is due to
deposits being applied to shipments made in the first and second quarters. In
order to mitigate the risk inherent in providing customized engineering and
product development work, the Company generally requires that all new large
orders be guaranteed by a deposit before work commences.
Contractual obligations
AFS (2004) had the following contractual obligation at September 30,
2006:
AFS (2004) leases 5,800 square feet of warehouse, shop and office space,
which currently house all of the company's operations. The lease agreement
runs until June 30, 2008 with monthly lease payments of $4,688.
Contingent liabilities
During the third quarter ended September 30, 2006, there were no material
changes in the contingent liabilities as disclosed in the audited December 31,
2005 financial statements.
Liquidity, capital resources and business risk
On April 15, 2005, the Company closed a series of equity financings (as
announced in the press release on April 18, 2005), which raised gross proceeds
of $1.5 million. As a result of these financings, AFS (2004) is better
capitalized to pursue potential business opportunities and increase its
sustainability period. Positive year to date cash flows from operations have
allowed AFS (2004) to maintain a healthy cash balance subsequent to the 2005
financings. As of November 22, 2006 the Company had 16,940,080 issued shares,
9,379,847 exercisable warrants outstanding, and 746,500 stock options granted.
Critical accounting estimates
The Company's September 30, 2006 period end financial statements contain
significant accounting estimates made by management, including ongoing
valuation of inventory and assessment of its net realizable value,
determination of the liability related to product warranty costs, and
recoverability of the carrying values of property, plant and equipment and
intangible assets.
Disclosure Controls and Procedures
The Company has established disclosure controls and procedures to ensure
that information disclosed in the MD&A and the related financial statements
was properly recorded, processed, summarized and reported to the Board and the
Audit Committee. The Company's chief executive officer and chief financial
officer have evaluated and are satisfied with the effectiveness of these
disclosure controls and procedures for the period ending December 31, 2005.
There have been no changes in the Company's internal controls that occurred
during the Company's interim period, the nine months ended September 30, 2006
that have materially affected or are reasonably likely to materially affect
AFS' internal controls over financial reporting.
Financial Statements
Below are the unaudited interim financial statements for the three and
nine-month periods ended September 30, 2006 and 2005. These interim financial
statements have not been reviewed by the Company's external auditor in
accordance with section 7050, "Auditor Review of Interim Financial Statements"
of the Canadian Institute of Chartered Accountants Handbook.
<<
ALTERNATIVE FUEL SYSTEMS (2004) INC.
Balance Sheets
(Unaudited)
(expressed in Canadian dollars)
September 30, December 31,
2006 2005
$ $
-------------------------------------------------------------------------
Assets
Current assets
Cash and short-term investments 1,514,016 1,655,287
Accounts receivable 413,830 307,352
Prepaid expenses and deposits 39,042 145,904
Inventory 597,156 486,941
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2,564,044 2,595,484
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Property, plant and equipment 210,937 215,297
Intangible assets 60,256 119,180
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2,835,237 2,929,961
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Liabilities
Current liabilities
Accounts payable and accrued liabilities 244,761 271,210
Advances from customers 110,700 212,663
Deferred revenue 17,298 18,102
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372,759 501,975
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Shareholders' Equity
Capital stock 2,438,571 2,423,571
Warrants 266,450 270,200
Settlement warrants 171,000 171,000
Contributed surplus 50,720 36,394
Deficit (464,263) (473,179)
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2,462,478 2,427,986
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2,835,237 2,929,961
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ALTERNATIVE FUEL SYSTEMS (2004) INC.
Statements of Operations and Deficit
(Unaudited)
(expressed in Canadian dollars)
For the three months For the nine months
ended September 30 ended September 30
2006 2005 2006 2005
$ $ $ $
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Product revenue 757,557 458,759 1,881,232 1,679,362
Cost of revenue 389,301 223,570 975,832 903,545
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Gross Margin 368,256 235,189 905,400 775,817
Engineering revenue 4,557 71,584 62,342 162,693
Interest and Other Income 11,330 7,329 36,285 15,541
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384,143 314,102 1,004,027 954,051
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Expenses
Operating and
administration
Engineering and product
development 143,398 142,763 433,368 437,922
Administrative and
other 96,701 111,188 310,355 383,992
Sales and marketing 41,593 37,598 125,773 111,850
Repayment of research
funding 5,716 3,981 14,550 13,828
Depreciation of property,
plant & equipment 13,262 15,341 40,649 45,371
Amortization of intangible
assets 4,951 27,391 59,840 82,155
Stock option compensation 4,084 2,896 10,576 6,312
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309,705 341,158 995,111 1,081,430
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Income (Loss) for the
period 74,438 (27,056) 8,916 (127,379)
Deficit - Beginning of
period (538,701) (379,388) (473,179) (279,065)
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Deficit - End of period (464,263) (406,444) (464,263) (406,444)
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Basic and diluted income
(loss) per common share 0.00 (0.01) 0.00 (0.01)
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ALTERNATIVE FUEL SYSTEMS (2004) INC.
Statements of Cash Flows
(Unaudited)
(expressed in Canadian dollars)
For the three months For the nine months
ended September 30 ended September 30
2006 2005 2006 2005
$ $ $ $
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Cash provided by (used in)
Operating activities
Income (loss) for the
period 74,438 (27,056) 8,916 (127,379)
Items not involving cash
Depreciation and
amortization 18,213 42,732 100,489 127,526
Stock option compensation 4,084 2,896 10,576 6,312
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Cash flow from operations 96,735 18,572 119,981 6,459
Change in non-cash
working capital items 44,288 (99,930) (239,046) (48,398)
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141,023 (81,358) (119,065) (41,939)
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Investing activities
Purchase of equipment
and intangible assets (13,569) (1,416) (37,206) (24,156)
Cash held in trust - - - 50,000
Due from AFS Energy Inc. - - - 36,711
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Cash flow from investing (13,569) (1,416) (37,206) 62,555
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Financing activities
Net proceeds from
share issue - - - 1,266,248
Proceeds from exercise
of warrants - - 15,000 -
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Cash flow from financing - - 15,000 1,266,248
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Increase (decrease) in cash
& short-term investments 127,454 (82,774) (141,271) 1,286,864
Cash & short-term
investments
- beginning of period 1,386,562 1,654,274 1,655,287 284,636
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Cash & short-term
investments
- end of period 1,514,016 1,571,500 1,514,016 1,571,500
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>>
AFS (2004) is a Canadian company providing innovative and cost-effective
solutions to the growing global problem of harmful exhaust emissions from
internal combustion engines. AFS (2004) has commercialized electronic engine
management systems enabling diesel and gasoline engines to operate on cleaner
burning natural gas and other alternative fuels. The Company is headquartered
in Calgary, Canada and trades on the TSX Venture Exchange under the trading
symbol AFX.
Forward-looking statements - this news release may contain
forward-looking statements about the business of AFS (2004) and marketing and
product development plans based on the current expectations of management.
AFS (2004) cautions investors that any forward-looking statements are
subject to various risks, uncertainties and other factors that could cause the
Company's actual results to differ materially from those expressed in, or
implied by forward looking statements. These risks, uncertainties and other
factors include, without limitation, uncertainty related to the Company's
ability to successfully implement its business strategy; the risk that product
development projects may not be completed successfully or in a timely manner;
the ability of the Company to successfully negotiate and execute definitive
agreements with its customers; the development of competing technologies and
the possibility of increased competition; fluctuating energy prices;
uncertainties involving government policies and government regulations
affecting the Company's business.
